What’s the difference between critical illness cover and income protection?

Life can be uncertain, but insurance could help provide a financial safety net in case anything happens to you. Income protection and critical illness cover could help support you or your family in case you can't work.

We’ll help you understand the key differences between critical illness and income protection.

  • Critical illness cover is an insurance policy that could give a tax-free lump sum payout if you’re diagnosed with a health condition covered by your policy, following a valid claim. This might include heart disease, dementia and cancer.

    The lump sum will be paid directly to you. Whether it’s for living expenses, paying for private treatment or making your home more accessible, it’s up to you how to spend it. This could free you to focus on your health and worry less about money.

    Who might need critical illness cover?

    Critical illness can benefit anyone but may be especially helpful to partners that have shared financial commitments. For example, you could secure your family’s financial future if you’re the main income earner and become too sick to work. The lump sum payout from your critical illness cover might protect you and your family, so you have one less thing to worry about.

    If you have children, you may want to add them to a policy or find one that includes children’s critical illness cover.

    Insurers may pay out if your claim meets the conditions stated in your policy terms. These could some exclude some things, like previous health issues. A payout also depends on you giving the correct information when you first apply for cover.

    It’s common with most combined life and critical illness policies that you can only claim once, either for a critical illness or on the death of a policyholder. After this, the whole policy finishes. While separate policies could cost more, they do allow you to claim once for a critical illness and then again on a life insurance policy at the time of death.

    Scottish Widows, our life insurance and critical illness specialist, paid out on 98.4% of their claims in 2022.

    Remember that life insurance products have no cash in value at any time. If no valid claim is made by the end of the policy term, it will end, and you’ll get no money back. Also, if you don’t pay your premiums on time your cover will stop, your policy will end, and you’ll get no money back.

  • Income protection is a type of insurance that gives a tax-free, monthly payment if you can't work due to injury or illness. You could receive regular payments until:

    • your cover ends
    • you return to work
    • you retire
    • you pass away.

    When applying for income protection, you can decide how much of your current salary you’d like to cover. You can then choose how much time you’d like to wait before the payment begins. A longer period could mean cheaper premiums for you.

    Who might need income protection?

    While anyone may benefit from income protection, it can be especially helpful if you’re looking for added financial security. For example, if you have dependants, mortgage repayments, or want to make sure you can maintain your current lifestyle in the event you can’t work, this type of cover could be worth considering.

    A payout from an income protection policy works in a similar way to your normal earnings. This means regular monthly payments until you’re able to go back to work. If you pay for things like household bills, food and clothing, or childcare costs from your wages then income protection may offer you financial protection.

    As with critical illness cover, an income protection policy does not have a cash in value at any time. If you do not pay your premiums on time then your cover will stop, your policy will end and you’ll get no money back.

  • There are some key differences and similarities between income protection and critical illness cover. They should help you decide which type of cover suits your personal circumstances.

    Differences between critical illness cover and income protection?

    • Inability to work vs medical diagnosis of a critical illness

    If you’re no longer able to work because of a physical injury or a health illness, you could receive income protection if you make a valid claim. Please note that a critical illness claim is only possible if you’re formally diagnosed with a specific illness covered by your policy.

    Lump sum or regular income

    Having an income protection policy could allow you to receive monthly payments if you can’t work. With critical illness cover, you’ll receive a one-off lump sum payout after making a successful claim for an illness that your policy covers.

    • Deferred payment or immediate support

    With income protection, you get to select a deferral period, which is the time you’re willing to wait before receiving the first payment. On the other hand, a critical illness cover payout is made as soon as the insurer can validate the claim. Our critical illness specialist Scottish Widows works in partnership with Macmillan to validate cancer diagnoses as quickly as possible. You may even receive an early minimum payment, prior to full settlement.

    • Cost of policy

    Income protection can often cost more than a critical illness policy. This is because income protection usually lasts longer and includes more reasons for not being able to work. The amount of cover is also open-ended because it gives financial protection until you either return to work or retire. Critical illness cover policies often involve a shorter period of time with a fixed potential payout value. As a result, it can cost less than income protection.


    Similarities between income protection and critical illness cover

    • Both address your health

    Both forms of cover come into play when you face physical or illness-related issues. They provide financial support to you and your loved ones during challenging times. Income protection may also pay out if you were unable to work through injury, which critical illness wouldn't.

    • Both pay out while you’re still alive

    Both income protection and critical illness cover are there to support you while you are alive, giving financial relief during a physical injury or illness. This might include things like changes to your lifestyle, mortgage repayments or general cost of living.

  • Several factors determine the cost of premiums for critical illness and income protection cover. While reviewing your application, insurers may look at several factors.

    For critical illness, these may include:

    • Your health status.
    • Lifestyle.
    • Medical history.
    • Age.
    • The length of time you want to be insured for.
    • Amount of cover you want.

    With income protection, costs could be affected by:

    • Your current earnings.
    • Your employment with a company.
    • The claims excess (or ‘deferral period’).
  • When considering critical illness cover vs income protection, you might want to look at your overall financial priorities as well as your family’s individual circumstances.

    For example, you may consider income protection while you’re still working, in case you can’t work due to illness or a physical injury. That way, income protection could offer some continuity in earnings as you focus on improving your health.

    Critical illness cover could provide you with a lump sum payout if you’re diagnosed with a serious illness. This money could go towards covering your health payments, or other commitments such as mortgage repayments.

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